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Showing posts from July, 2013

Gift Card Taxable as Compensation

Question:

Our church recently decided to provide a monthly gift card to one of our members who cleans the church on a weekly basis for no compensation.  Does this monthly gift need to be reported as income to the IRS?

Answer:

This should be reported as taxable compensation. Because the member is performing services for the church, any non-cash payment should be reported as compensation for those services. While the gift card is not technically cash, it is still taxable as an item of value provided to the member in exchange for the work performed. According to IRS Pub. 525, "In most cases, you must include in gross in­come everything you receive in payment for personal services. In addition to wages, salar­ies, commissions, fees, and tips, this includes other forms of compensation such as fringe benefits and stock options."

MinistryCPA Special Topic: Social Security

Periodically throughout the next few months, we will cover various topics relating to Social Security, following our usual question-and-answer format.  We plan to cover topics of interest to a broad group of readers, since individuals who are just beginning to pay into Social Security should be just as concerned about the state of their benefits as individuals just a few months from retirement. The first question relates to Social Security Statements.

Question:

In the past, the Social Security Administration (SSA) mailed periodic statements, which reported my up-to-date record of earnings and projected benefits. Since the SSA no longer mails periodic Social Security Statements, how can I get access to this information?
Answer:
Just as with any other savings plan, it is important to track your earnings and understand your projected benefits through Social Security. You can create a personal Online Social Security Accountfor online access to benefits and earning information. 
To request a pa…

MinistryCPA Special Topic: Motivations for Giving to God's Work

Question:
One of the wealthy men in the church was overheard by a member of the youth group, "I wish the preacher would stop ranting about giving all the time! I've got to be the biggest giver in the church already. You'd think our church was on the edge of financial ruin!" Later, at the dinner table, the young person still wrestled with the ramifications of what the man had said, "Dad and mom, why does our pastor preach about giving?" What Biblical response can these parents offer to their inquisitive teenager?
Answer:
Dad and mom could first remind their child of the Apostle Paul’s response when addressing a similar question, “Every man according as he purposeth in his heart, so let him give; not grudgingly, or of necessity: for God loveth a cheerful giver” (II Corinthians 9.7). The reasons (Paul, “purposes”) for giving to God’s work, His workers and to others is a private matter of the heart. If others cannot give joyfully, we might feel sorry for them, b…

Designated Gift to a Missionary

Question 1:

A church recently held an ordination service for one of its members, who is planning to go on a foreign missions trip. During the service, a $1,000 special offering was taken. Is this offering taxable for the missionary? Is it deductible by the donors?

Answer:

Yes, the offering is taxable as compensation. Because the missionary is "self-employed" for income tax purposes, the church should issue Form 1099-MISC, and the missionary should closely track and report business expenses to facilitate deductibility of those expenses. The gift is also deductible by the donors, because it is viewed by the IRS as a congregational gift. The key is initiation of the gift: a gift to an individual initiated and controlled by the church is deductible by the donors.

Question 2:

After the offering has been given to the missionary, a friend gives another gift to the church. This gift is designated for the missionary, but "to be used as the church sees fit if the trip is fully funded.…

MinistryCPA Special Topic: God Gives the Ability to Gain Wealth

Question:

A young man posits a question to his Christian grandfather: “Grandpa, I hope that I can someday have the smarts that you have. You have so much cool stuff—and you are always paying the bill at the restaurant and giving money to people. What is your secret to success?” How should a godly grandfather respond biblically to his grandson’s question?

Answer:

A Christian family might have an attitude that its position of wealth came from shrewd business strategies and hard work. At least at a time when he felt he needed an explanation to offer to his wives for his accumulation of wealth, Jacob credited God for his extensive possessions.

Thus God hath taken away the cattle of your father, and given them to me (Genesis 31.9).

Moses warned the people of Israel not to think of their possessions in this way: And thou say in thine heart, My power and the might of mine hand hath gotten me this wealth. But thou shalt remember the LORD thy God: for it is he that giveth thee power to get wealth, …

MinistryCPA Special Topic: Introducing God's Way of Giving

First, God gives. Then, Christians respond to His generosity (1) by giving Him thanks, (2) by giving to God’s work and His workers, and (3) by giving to others. You may not find a more succinct, yet comprehensive, framework for God’s Way of Giving in the Bible than that found in Deuteronomy 26.1-13.
God is the model giver—without equal. There are more than 735 specific references in the Scriptures to giving. Well over half relate to giving by God to men.

James said (1.17) “Every good gift and every perfect gift is from above.” God is the originator of every good and perfect gift.
Peter said (II Peter 1.2-3) that God has “given unto us all things that pertain unto [our] life (physically, materially, socially) and godliness (spiritually).”
Over the next weeks and months, as time permits, MinistryCPA will share with our readers our understanding from the Bible of God’s Way of Giving. We will do so in our standard, Question and Answer format.

Church Car Purchase for Pastor

Question:

A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement?

Answer:

The church has two main alternatives for this purchase: 
Title the car in the pastor's name and reimburse him for business expensesTitle it in the church's name and treat personal use as taxable compensationThere are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post.

If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The church can reimburs…

Charitable Contribution for Travel to Training Conference?

Question:

A group of church members are traveling out-of-state to a conference for training to lead discipleship groups. Are contributions made towards travel expenses for this trip deductible?

Answer:

While the answer to this question can change based on the circumstances of the specific situation, a few principles hold true across the board. According to IRS Pub. 526: "Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses.

"The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organi…

Church Filing Requirements as a 501(c)(3)

Question:

Is a church required to apply for 501(c)(3) tax-exempt status and file an annual report with the IRS?

Answer:

Generally, churches are not required to file annual reports with the IRS or apply for tax-exempt status. Non-church tax exempt organizations must submit to often rigorous requirements that churches fortunately escape. These include Form 1023 to apply for recognition as a tax exempt organization and Form 990 to annually disclose financial and other information. 

The exception to the rule exempting churches from annual filing relates to at least two instances when Form 990 may be filed:
Unrelated business income tax (UBIT): according to IRS Pub. 598, a church which earns income from a "trade or business not substantially related to its exempt purpose" (excluding rental income from real property) will be required to report that income on Form 990-T.Small Business Healthcare Tax Credit: a church which qualifies for and claims this credit will be required to file For…

Charitable Contributions Made Through PayPal

Question:

A tax-exempt organization would like to begin accepting donations through PayPal. How should the organization treat the service fee that is charged for each transaction? Can the donor claim a deduction for the full amount of the contribution, or for the contribution minus the service fee?
Answer:

With the widespread use of technology to make donations and other banking transactions easier, many organizations will soon have to face this issue. Fortunately, application of accounting principles will lead to an understanding of the correct treatment from the perspective of both the donor and the charitable organization.

A charitable organization accepting donations through PayPal should use revenue recognition principles consistent with those employed in any other situation. Therefore, in order to accurately reflect the details of the situation and the intent of the donor, the full amount of the contribution should be recognized as income. The service fee should then be recorded as …

Deductibility of Designated Gifts to a Minister

Question:

A member of a church would like to make a weekly donation to the pastor through the general fund, with a check designated as a gift for the pastor. Is this donation tax-deductible? Is it taxable to the pastor since it is a gift?
Answer:

The key in this situation is to realize that, as a general rule, the gift will be either 1) non-taxable to the recipient and non-deductible to the donor or 2) taxable to the recipient and deductible by the donor. IRS Publication 526 prohibits deduction of contributions to individuals: "You cannot deduct contributions to specific individuals." However, through church-initiated actions to individuals are treated differently because churches are non-profit organizations for tax purposes.

The deciding factors for this question are the initiation and control of the gift. Gifts initiated by the leadership or the congregation as a whole, even if directed toward an individual, are deductible because they are regarded as a corporate act. In virt…